Dealing with a car loan can be quite the headache, but here are some things that everyone needs to know.
First, a car loan is a long-term commitment. Many dealerships are now offering car loans that are 72 months, 78 months or even 84 months long. That’s between seven and eight years, a lot longer than the average person intends to keep a new car when they purchase it. Since even the best warranties in the business are generally 60 months (five years) bumper-to-bumper and 10 years for the power train only, chances are that this car is going to need major maintenance and repairs long before the car loan is paid off. This is important in planning your budget around your car payment, so that even if the car has a great warranty, you are saving for those upcoming expenses.
Second, your credit rating will affect you car loan. This seems obvious, but many people have not considered it when they go shopping for a new car. Advertised interest rates of zero percent or cash-back financing are often only available for those with the best credit ratings, so shoppers should not expect a car loan at those rates.
Once you understand that your credit rating is going to affect your car loan rate, it makes sense to get a copy of your credit report or at least know your credit rating before going shopping for a car loan. This allows you to anticipate any issues the financier might have with your credit and gives you the knowledge you need to deal with any objections to your loan application.
Some unscrupulous loan officers might try telling uninformed buyers that their credit is “too bad” for standard financing and offer loans for people with less than perfect credit. Knowing your credit score can help you counter these types of people.
Third, your bank or credit union may be able to offer you a better car loan than the car dealership. Given the length of the commitment to this loan, it makes sense to shop around for the best loan available, but most people walk into a dealership and let them handle the financing. The dealership is not in the business of getting you the best car loan out there. That’s your job.
The dealership is interested in getting you a car loan, but they do not care if it is one that is good for your financial future or not. So, it is important to shop around yourself for a car loan and find the best rates. Often, this will be with your bank or credit union where people are familiar with you and your credit, but it might also be with a national lender.
One word of caution: applying for a car loan via several lenders could temporarily lower your credit rating. Any time a person applies for multiple new lines of credit there can be a short term lowering of their credit rating while the system figures out that they did not in fact open up that many new debts.
Finally, the most important thing to be aware of when getting a new car loan is to read all the fine print. Unfortunately, many people believe loan officers when they say that it is a standard for and that they don’t need to read it.
While it is a standard form to them and they may not be deliberately misleading you, the reality is that you do not sign car loans every day and some small print which they regard as standard might be important to you. Read every word and then make the right choice.